This month marks the birth centenary of Friedrich A. von Hayek,
one of the greatest philosopher of freedom and Nobel laureate economist.

While we in India were fascinated by government planning, a quarter
century ago in 1974, the Nobel Academy held that "von Hayek's analysis
of the functional efficiency of different economic systems is one of his
most significant contributions to economic research in the broader sense.
… … His conclusion is that only by far-reaching decentralization in a market
system with competition and free price-fixing is it possible to make full
use of knowledge and information."1

Impact of Hayek

Today, a wide range of people has acknowledged his contribution all over
the world. From philosophers like Karl Popper, Robert Nozick and Michael
Focult, to political leaders like Ronald Reagan, Margaret Thatcher and
Vaclav Kalus, to Nobel laureate economists like Milton Friedman, James
Buchanan and Ronald Coase, and countless others. As the iron curtain was
being built in the aftermath of World War II, Ludwig Erhard, the finance
minister of West Germany turned to Hayekian ideas to rebuild his country.
Half a century later when the iron curtain collapsed, leaders in many countries
in Eastern Europe again turned to Hayek in their attempt to rebuild their
societies. And Hayek is reportedly available on the bookshelf of even the
Chinese Prime Minister.2

If today, the world is witnessing a perceptible change in thinking,
it is in no small amount due to the legacy of Hayek.

Economic historian J. Bradford De Long of University of California at
Berkeley, says,
"Hayek's adversaries -- Oskar Lange and company -- argued that a market
system had to be inferior to a centrally-planned system: at the very least,
a centrally-planned economy could set up internal decision-making procedures
that would mimic the market, and the central planners could also adjust
things to increase social welfare and account for external effects in a
way that a market system could never do. Hayek, in response, argued that
the functionaries of a central-planning board could never succeed, because
they could never create both the incentives and the flexibility for the
people-on-the-spot to exercise what Scott calls metis.

"Today all economists -- even those who are very hostile to Hayek's
other arguments -- agree that Hayek and company hit this particular nail
squarely on the head. Looking back at the seventy-year trajectory
of Communism, it seems very clear that Hayek .. [is] right: that its principal
flaw is its attempt to concentrate knowledge, authority, and decision-making
power at the center rather than pushing the power to act, the freedom to
do so, and the incentive to act productively out to the periphery where
the people-on-the-spot have the local knowledge to act effectively."3

No wonder commemorative events are being organised in London, Paris,
Vienna, Washington, D.C., Montreal, Eastern Europe, and Central America.
The Adam Smith Institute in the United Kingdom has named him the man of
the century. Earlier this year The Wall Street Journal named
him among the most influential economists of this century.4The Economist, the weekly journal, has marked the occasion.

Hayek, the academic activist

Hayek was more than a Nobel Prize winning academic. He was an intellectual
giant, who was also a gentleman to the core. The man, who went on to become
one of the greatest champions of liberty, had begun his life as a young
soldier in the Austro-Hungarian Empire and sent to the Italian front in
1917. An academic, whose "controversial ideas" were eventually recognised
by the Nobel committee in 1974, Hayek was also an activist who was among
the founders of the Mont Pelerin Society in 1948. This was an organisation
dedicated to pursuing the intellectual battle against all forms of authoritarianism
and tyranny at a time when it was fashionable to call oneself socialist.
Today, it has hundreds of members, including many Nobel laureates, spread
across all the continents. He inspired many to take up intellectual activism
like the late Sir Anthony Fisher, the British businessman who founded the
Institute of Economic Affairs in London in 1955. Over the years, IEA, an
independent think tank, have produced countless policy papers and books
on contemporary issues, and is recognised to have contributed to changing
the popular perception that made the Thatcher revolution possible in Britain
in the 1980s

Hayek was born in Vienna, Austria, on May 8, 1899, to August Edler von
Hayek & Felicitas von Hayek. Even as a teenager, he was interested
in philosophy, economics and ethics. But his studies were interrupted as
he was called for military duty in 1917, and saw action on the Italian
front. On his return from service he went back to college. In the 1920s
Hayek was part of that heady circle in post-war Vienna, a group which featured
some of the greatest minds of the century. He earned two doctorates, one
in law and another in political science. He studied economics under Ludwig
von Mises, one of the greatest exponents of the Austrian School. He left
for England in 1931 worried about the rise of the Nazis in Germany. Hayek
mainly taught at the London School of Economics, but had short spells at
universities around world including, Cambridge, Chicago, Stanford, Tokyo,
and Freiburg.

Hayek was one of those few fortunate people who lived to see the tumultuous
events that shook the socialist empire, and be vindicated. In a letter
written in 1989, he noted, "the ultimate victory of our side in the long
dispute of the principles of the free market."5
He must have been saddened at the enormous cost, both human and material,
that was paid in pursuit of a doomed experiment. Hayek died in Freiburg
on 23 March 1992.

Dispersed knowledge

In the 1930s, Hayek was the principal opponent Keynes. In various scholarly
publications - Monetary Theory of Trade Cycle (1933), The
Pure Theory of Capital (1941) - he had pointed out that business
cycles are caused by monetary mismanagement in. This contribution of Hayek
was noted by the Nobel committee. Subsequent events have completely vindicated
Hayek. Concerned about the stability of value, he wrote a radical essay
in the 1976, "The Denationalisation of Money", where he argued that it
was a serious mistake to allow governments to monopolise the legal tender.
He called for the freedom of the individuals to trade in whatever media
of exchange they thought best.

For a ten-year period spanning over both sides of the Second World
War, Hayek developed his ideas about knowledge and its relationship with
economics. The papers were put together in Individualism and Economic Order
(1948). Apart from questioning the economic basis of central planning,
he dealt with "The Use of Knowledge", and "The Meaning of Competition."

Hayek emphasized that division of labour and division of knowledge was
complimentary. Every individual possessed some specialised and local knowledge
that was particular to his situation and preferences. Yet, the market,
through the competitive price system, successfully coordinated all these
bits of knowledge. Prices provide the incentive to invest in certain areas,
and the information regarding the possible opportunities.6
Hayek explained, "We must look at the price system as such a mechanism
for communicating information if we want to understand its real function…
… The most significant fact about this system is the economy of knowledge
with which it operates, or how little the individual participants need
to know in order to be able to take the right action."7

Jan Tinbergen, another Nobel laureate in economics, recognising the
significance of Hayek's theory of knowledge says, "The key importance of
the amount of information available and the frequent lack of relevant information
have been dealt with only in the last decades. Ludwig von Mises and Friedrich
A. von Hayek can rightly be regarded as pioneers in this connection." 8

Spontaneous order

Hayek also developed the idea of "spontaneous order" to describe the progress
of civilisations. Language, customs, traditions, rules of conduct, have
all evolved without any conscious design, and without that freedom societies
may not have evolved beyond primitive levels, he held. Advancement of society
was dependent upon no one overall "plan" being imposed over the actions
and plans of the individuals making up the society. Building on Adam Smith's
"invisible hand", Hayek showed that planning need not necessarily lead
to order and lack of a guiding hand need not degenerate in to chaos.

Hayek argued that the most advanced institution of a modern society
- the market - belonged to this third category. Each member of this third
group would be bounded by rules, have its own order and increase in complexity
in a way that would not be fully understood. According to Hayek, the evolution
of language best illustrated this aspect. No single individual or group
thought it up. Yet, it has its own rules of grammar, and language continues
to evolve as mankind advances. Nevertheless it could not be described in
complete detail even with the help of all the modern technology.9

Wrote Hayek: "… … it is largely because civilization enables us constantly
to profit from knowledge which we individually do not possess and because
each individual's use of his particular knowledge may serve to assist others
unknown to him in achieving their ends that men as members of civilized
society can pursue their individual ends so much more successfully than
they could alone." 10

This characteristic of the market where order seemed to develop quite
spontaneously, along with dispersed nature of knowledge, raises one the
most fundamental question on the utility of government intervention in
the economy to achieve a particular end. The institutions created by government
decree to provide direction to such intervention would under the best of
circumstances simply be overwhelmed by the sheer volume of knowledge that
they will need to process.

In contrast, the market routinely brings to order millions of evaluations
undertaken by each individual participant. Hayek showed that progress arises
from a continuous process of "discovery" wherein a variety of producers
and consumers experiment with a wide range of possible opportunities to
make profit.11 Most such experiments
fail in the marketplace, and the innovators bear the cost taking the risk.
But some succeed, and the benefits are enjoyed by all. That is the reason
why in a free market, voluntary trade creates a win-win situation for all
participants.

Increasingly, there is appreciation of the advantages of the dispersed
knowledge. In his Nobel Memorial Prize lecture, economist Ronald Coase
said, "In fact, a large part of what we think of as economic activity is
designed to accomplish what high transaction costs would otherwise prevent
or to reduce transaction costs so that individuals can negotiate freely
and we can take advantage of that diffused knowledge of which Friedrich
Hayek has told us."12

The Road to Freedom

Hayek also published works more accessible to a wider public, which included
books such as The Road to Serfdom (1944) and The Constitution
of Liberty. The former has been nominated by journals like London's
Time Literary Supplement as one the noteworthy books of this century. Dozens
of unauthorised editions of it were known to be in circulation among the
underground activists in the Eastern block during the cold war. This book
has now been published in many languages across the world, In the 50th
anniversary edition of Serfdom, Milton Friedman has written an introduction.

Unfortunately, Hayek is hardly known in India today, and very few of
his titles are available in the market. While his relevance to us cannot
ever be underestimated. Today we are so concerned about corruption and
criminalisation of our public life. But over five decades ago in Serfdom,
he had outlined how the worst got to the top by taking advantage of the
power of patronage vested in political establishment through "legalised"
intervention in the economy. After all, as Hayek put it, "From the saintly
and single-minded idealist to the fanatic is often but a step."

We are concerned that after fifty years of independence, poverty is
so wide spread, and as a measure to speed up the process of redistribution
of wealth, we thought it prudent to abolish right to property as a fundamental
right. Hayek had cautioned all those years ago that "The system of private
property is the most important guaranty of freedom, not only for those
who own property, but scarcely less for those who do not."

We want "social justice", while Hayek's warned that "There is all the
difference in the world between treating people equally and attempting
to make them equal", and to attempt otherwise would only contribute to
social collision. "Equality before the law and material equality are therefore
not only different but are in conflict which each other; and we can achieve
either one or the other, but not both at the same time", wrote Hayek.

The world has had a bitter experience in the 20th Century. The dreams
of a socialist-collectivist utopia were shattered by economic collapse
and degenerated in to tyrannical police states. According to historian
Thomas Sowell, if one was to mark the time when the intellectual tide began
to turn against the ideal of socialism then it was with Hayek's Serfdom.13

As we in one of the last remaining "socialist republics" in the world,
grope to find a way to shed the statist mindset, it may be quite illuminating
to take a look back at Hayek. We, at Liberty Institute are brining out
small volume soon that will contain Hayek's stimulating essay "Intellectuals
and socialism".

Julian L. Simon, the noted economist and a professional colleague of
Hayek, recounted the following anecdote that demonstrated why Hayek stood
out as an intellectual. "After receiving the Nobel Prize, Hayek wrote that
the prize should not be awarded in economics. His reason? Once a person
receives the prize, he or she is inevitably asked by journalists about
subjects outside his or her special knowledge. And too often the laureate
responds to such questions. The answers have a good chance of causing damage
because they are taken as statements of expert knowledge even though they
are nothing more than uninformed opinions. Hayek's personal modesty, reflected
in this view of the Nobel prize, is part-and-parcel of his abhorrence of
the "fatal conceit" -- the title of his final book -- that the reasoning
powers of clever people are capable of successfully remaking society at
will."14

While the world is marking his centenary now, the next century could
well belong to him. And ideas do change the world. Let us hope that the
intellectual tide in favour of Hayek will become a tidal wave in the next
millenium. Hayek's Road to Serfdom may actually help pave the road to freedom
for all of us.

Endnotes

3. Quoted in the Hayek
Scholars Page on the internet, maintained by Prof. Greg Ransom of Department
of Social Science, Mira Costa College, U.S.A. This site is a virtual treasure
house of information on Hayek, including biographical details, lists
of books by and on him, links to articles and other related sites.
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